Which of the Following Would Cause a Well-Run Company to Become

question 42

Multiple Choice

Which of the following would cause a well-run company to become highly leveraged?

• A)when the money that the company can earn investing the money that it borrows is equal to the cost of borrowing
• B)when the money that the company can earn investing the money that it borrows is significantly less than the cost of borrowing
• C)when the money that the company can earn investing the money that it borrows is significantly greater than the cost of borrowing
• D)when the money that the company can earn investing the money that it borrows is equal to more than half of the cost of borrowing

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Definitions:

Coupon Interest Rate

Yearly rate of interest on a bond, denoted as a percentage of its principal value.

Yield To Maturity

The total return anticipated on a bond if the bond is held until it matures, encompassing all interest payments and the repayment of principal.

Par Value

The face value of a bond, or the stock value stated in the corporate charter, often used as the basis for accounting of the bond or stock.

Annual Coupon

The annual coupon is the interest payment that a bond issuer makes to bondholders each year, expressed as a percentage of the bond's face value.